Retailers fighting to survive

Tuesday

Dec 30, 2008 at 12:01 AMDec 30, 2008 at 12:26 PM

NEW YORK -- The fallout from the horrific holiday season for retailers has begun, with the operator of an online toy-seller filing for bankruptcy protection and more stores expected to do the same -- meaning more empty storefronts and fewer brands on store shelves.

NEW YORK -- The fallout from the horrific holiday season for retailers has begun, with the operator of an online toy-seller filing for bankruptcy protection and more stores expected to do the same -- meaning more empty storefronts and fewer brands on store shelves.

A rash of store closings, which some experts predict will be the most in 35 years, is likely to sweep areas from electronics to apparel, shrinking the industry and leading to fewer niche players and suppliers.

The most dramatic pullback in consumer spending in decades could transform the retail landscape, as thousands of stores and entire malls close. Analysts expect prolonged woes in the industry as the dramatic changes in shopping behavior could linger for another two or three years amid worries about the deteriorating economy and rising layoffs.

"You are going to see a substantial retrenchment in the retail industry," said Rick Chesley, partner in the global bankruptcy and restructuring group at international law firm Paul Hastings. "The downturn has been catastrophic."

A number of stores couldn't even make it to Christmas. Circuit City Stores Inc. filed for bankruptcy protection last month. It plans to keep operating, but toy-seller KB Toys, which filed for bankruptcy this month, is liquidating its stores and will shut down.

The survival prospects for many more stores are dimming as more sales data come in about the crucial holiday shopping season, which can account for up to 40 percent of a retailer's annual profit.

Holiday sales fell between 2 percent and 4 percent compared with a year ago, according to SpendingPulse, a division of MasterCard Advisors. Excluding gas and car sales, they dropped between 5.5 percent and 8 percent from Nov. 1 through Dec. 24, as key categories from luxury goods to electronics posted double-digit sales declines. Sales of electronics and appliances fell nearly 27 percent, for example.

The retail casualties, which were first among home-furnishing stores and then many apparel stores over the past year or so, are expected to cut across all sectors as shoppers have slashed their spending on nonessentials from TVs to jewelry.

About 160,000 stores will have closed this year and 200,000 more could shut down next year, said Burt P. Flickinger III, managing director of consulting firm Strategic Resource Group. That would be the industry's biggest contraction in 35 years. In March and April, Flickinger expects 2,000 to 3,000 malls to close.

This week, Parent Co., the operator of eToys.com, filed for Chapter 11 bankruptcy protection and said it will consider selling some or all of its operations. Chris Byrne, a New York-based toy consultant, said that eToys.com couldn't compete with the aggressive tactics embraced by Toys "R" Us and Wal-Mart Stores Inc., the nation's top two toy-sellers.